STOXX 600 hits record high after US-Iran preliminary peace deal
Market Reaction and Sector Performance Following US-Iran Agreement
By Johann M Cherian and Utkarsh Hathi
June 15 (Reuters) - Europe's STOXX 600 hit a record high on Monday, boosted by a relief rally across most sectors after the United States and Iran reached a preliminary agreement that would open the Strait of Hormuz and end the three-month-long war in the Middle East.
Global Sentiment and Oil Prices
Global risk sentiment got a lift and Brent crude prices fell nearly 5% after U.S. and Iranian officials said they had agreed on a framework for a deal, scheduled to be signed on Friday.
STOXX 600 Index Performance
The pan-European STOXX 600 index rose 1% to 639.20 points by 0802 GMT, surpassing its previous all-time high scaled on February 27.
With Monday's gains, the benchmark has recouped all of its conflict-related losses, while the euro STOXX volatility index hit its lowest since the start of the conflict in late February.
Comparison with Global Markets
European shares had broadly underperformed their peers in the U.S. and Asia since March, largely due to the continent's reliance on the Strait of Hormuz for crucial oil supplies and its smaller exposure to AI technology stocks.
With Monday's gains, the STOXX 600 is now up 7.9% for the year, narrowing its gap with the U.S. benchmark S&P 500 that has risen more than 8%.
Expert Commentary
"If you really do start to get oil flowing back again in a sustainable way, then it will give European markets a real boost," said Chris Beauchamp, chief market analyst at IG Group.
"There'll be plenty of fund managers who will be looking at this and thinking, well, the problem with chasing tech at these levels is - it's eye wateringly expensive and a lot of the good news is priced in."
Broad Rally in Europe
Regional Index Performance
BROAD RALLY IN EUROPE
Germany's DAX index led gains among major regional indexes, rising 1.6% to a two-week high. France's CAC 40 index climbed 1.2% and hit its highest since early March.
Sector Highlights
Gains were broad-based on the STOXX 600. The luxury sector, which has been hit the most this year on the STOXX index, rose 3.4% and led gains.
Energy price-sensitive auto stocks gained 3%, while airlines such as Lufthansa and Air France jumped 4.7% and 2.8%, respectively.
The broader travel and leisure sector hit a record high, while the banking index hit its highest since January 2008.
Monetary Policy and Economic Outlook
Concerns over energy-driven inflation led the European Central Bank to hike interest rates by 25 basis points last week and despite Monday's pact, most analysts anticipate energy costs to stay elevated as oil flows resume slowly through the Strait and Middle Eastern countries repair damaged infrastructure.
The yield on eurozone short-term bonds, reflecting interest rate expectations, fell to a two-week low, although traders held onto expectations of another 25-bp ECB rate hike before the end of the year, according to LSEG-compiled data.
ECB Response
"You can feel the palpable relief in Europe. The ECB will be pleased that they don't have to keep talking up a strong game and probably that will outweigh their slight feelings of embarrassment about having to have been bounced into a hike last week," Beauchamp said.
Corporate News and Sector Laggards
Company Announcements
In corporate news, Renault Group gained 4% after the carmaker said it would develop a military vehicle in partnership with defence technology company Thales.
AI equipment maker Schneider Electric climbed 3% after entering a strategic collaboration with Taiwan's Foxconn to develop and scale infrastructure for next-generation AI data centres.
Sector Laggards
Among laggards, energy stocks fell 3.1%, tracking lower crude oil prices.
(Reporting by Utkarsh Hathi and Johann M Cherian in Bengaluru; Editing by Janane Venkatraman, Eileen Soreng and Subhranshu Sahu)
